The Experience Curve (Business Growth)

which of the following would be an example of the experience curve? This is a topic that many people are looking for. khurak.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, khurak.net would like to introduce to you The Experience Curve (Business Growth). Following along are instructions in the video below:

“There let s take five minutes to look at a model that you may come come across when you re exploring the concept of business growth. This model is called experience curve and the basic idea behind this model. The experience curve is that a business will achieve lower unit costs as it develops experience in production as it develops expertise and if you wanted to illustrate that graphically that i suppose. That s how you do it.

But the most important thing here is just to think about how it is what is the the connection between gaining experience and enjoying unit costs that are falling a potential source of advantage. The model was actually developed back in the 1960s by the boston consulting group. Who noticed in one of their clients. A manufacturer of semiconductors that a unit costs were falling as volume was increasing and as they looked at why that was they concluded that the business.

The semiconductor manufacturer had gained expertise gained experience in organizing production in a way that meant that the efficiencies were coming through so why is it happening. Why might the experience curve happen well. I guess there are a number of reasons. There could be one or more reasons.

Why unit costs fall as experience grows firstly. You should just become more efficient at what you do you work out how to organize production. You maybe find ways of training. Both the workforce as well as implementing automation.

Increasingly businesses specifically. Manufacturers are swapping labor for automation in order to reduce unit costs you may be able to standardize your production processes and i guess you ll also learn through experience. The best way to produce the product to the designer products. But also to design the production process and find all kinds of efficiencies.

Now. If the experience curve is true it potentially leads to some quite important cost advantages and therefore potentially competitive exam. Antigens. So the argument is that if a business has the best experience.

It may be able to operate at a cost advantage and therefore be able to either offer a lower price in the competition. Or earn higher profit. Margins. Boston.

Consulting. Group. Took their that theory took their insights and basically concluded that the best strategy for a business was to try to have the highest market share and therefore turn experience into high market share. Which in turn creates a barrier to competitors entering the market.

One useful year way of using the experience curve is just to make a link between it and other models and in particular. I think porter s model his strategic model of the options available to businesses as nice as a nice link here between the experience curve and in particular businesses. That operate and compete on the basis of low cost so we know quite a few those depending on the markets that you ve looked at perhaps the the low cost airline sector. The local supermarkets.

The growth of oldy and little and more recently the rapid rise of low cost health clubs like in the gym group and pure gym where in in all cases their business model is essentially based around the experience they have of operating at super low cost in order to undercut higher priced rivals. Features of those kind of businesses like right. There. Like aldi like pure gym is that they enjoy economies of scale of course.

But they re also highly efficient and highly lean. They found the best way of operating in order to reduce all aspects of cost and i would argue that that combination of strategies is effectively their experience in being low cost operators. It s not easy being a successful low cost oppressor you have to work quite hard at it now just a quick word on the on the model of course. If you were evaluating the model.

You would want to have a bit of balance. One key point is that the model was developed you know 4050 years ago. Therefore. It may have a limited application in the modern business world and of course.

You can also make an argue that experience isn t everything when it comes to having competitive advantage. There are plenty of examples of businesses over the years like let s think of to kodak and nokia that had high market share at leading market share. But they had quickly become complacent. Perhaps as a result of their experience.

Their expertise. Which maybe led to a loss of innovation and a resistance to make the kind of changes that you need to make in order to remain competitive. So be careful with the experience curve always try to identify some balance rather than just assuming that it will apply. But hopefully you found that useful as an overview to the ” .